J.C. Penney Amends and Extends "Poison Pill" Plan

Posted on January 29, 2014 by HFN Staff

PLANO, Texas-J.C. Penney's board has changed the stockholder rights plan adopted last August--commonly called a "poison pill" plan--by extending its expiration date from Aug. 20, 2014, to Jan. 26, 2017, and lowering the threshold for a person or group to acquire the company from 10 percent.

Under the terms of the amended plan, if any person or group acquires 4.9 percent or more of J.C. Penney's outstanding shares of common stock without the approval of the board, it would act as a "triggering event causing significant dilution in the ownership interest of such person or group," according to a J.C. Penney statement. For existing shareholders who currently own 4.9 percent or more shares, the trigger would only occur if those shareholders bought additional stock, the statement said.

J.C. Penney said the amended "poison pill" is intended to reduce the likelihood of an ownership change. In addition, the change and extension of the plan will protect what the company called "net operating loss carryforwards," of which it has more than $2 billion, and which can be used in certain circumstances to offset future taxable income and reduce federal income tax liability, the company said.

The retailer's board adopted the original "poison pill" after a dispute between itself and Bill Ackman, head of Pershing Square Capital Management, which at that time held 18 percent of J.C. Penney's shares, over the management of the company. Ackman had pressured the board to accelerate its search for a CEO to succeed Myron Ullman III, and had called for Thomas Engibous, J.C. Penney's chairman, to be replaced. Press reports said the "poison pill" was intended to prevent another activist shareholder from acquiring enough shares to pressure the board.

Two weeks after the initial rights plan was adopted, Ackman agreed to divest his J.C. Penney stock.